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Many people feel a credit card with an attractive rewards or points system can save them money. However, this isn’t the case for everyone: Three in ten (30%) admit that their rewards card has neither saved nor cost them money, and 6% believe that having this type of card has actually come at a cost, NerdWallet research has found.
With so many different options available, the best credit card for you may not always be the most obvious. The array of options can be overwhelming, but many of us (33%) will choose a credit card based on the rewards it offers, while almost a quarter (24%) will opt for a cashback credit card.
The consumer credit survey, conducted by OnePoll on behalf of NerdWallet UK, found that the opportunity to earn reward points or cashback influenced the choice of UK consumers more than factors such as a low or 0% interest rate for new purchases or balance transfers (20%), their credit limit (19%), the opportunity to improve their credit score with a credit builder card (18%), or a low APR (12%) even though, over time, a low APR could actually save them much more money.
“Rewards and cashback cards are so appealing because they tap into our innate desire for instant gratification,” says Ed Fraser, Founder and Head of Coaching at The Parent Money Coach. “Receiving cashback or points feels like an immediate win – something tangible and exciting – whereas benefits like low APR or 0% offers, which can save much more in the long run, don’t provide that same instant dopamine hit. It’s a classic case of short-term pleasure outweighing long-term gain, and it’s a clever use of financial psychology by card providers to drive engagement.”
How do you know if you’re leaving cash on the table? Whether you want to maximise the value you get from your rewards credit card or avoid costly mistakes – read on.
How rewards credit cards can cost you money
There are three common reasons reward or cashback credit cards could cost you money:
- You overspend: Even though most cardholders enjoy savings via their rewards credit cards, there is a danger that the desire to earn points and maximise rewards could mean that you spend more than you can afford.
- You don’t spend enough: Some of these cards have fees or a minimum spend, so unless you meet this threshold then you won’t earn any rewards or cashback. For example, the American Express Cashback Everyday credit card requires you to spend at least £3,000 each year before you qualify. Others, like the Lloyds World Elite credit card, have a £15 per month fee, so it’s important to check that you stand to earn enough rewards to cover the fees.
- You don’t pay your bill in full each month: Using your rewards credit card to cover everyday expenses can be a useful tactic to earn more points. However, unless you’re in a position to clear your balance each month, your rewards credit card could quickly cost you more in interest and/or fees than you earn in rewards or cashback. Not only that, but over time, your debt will steadily increase, which could ultimately hurt your credit score making it harder or more expensive to borrow in the future.
“It’s really easy to fall into the psychological trap of spending more just because you get cashback and rewards,” warns financial coach and author Clare Seal. “So it’s really important that you still keep tabs on your spending and remember that cashback and rewards aren’t worth getting into debt for, especially when they are worth nowhere near what you would pay in interest on most credit cards’ standard APR. If you’re going to use credit card cashback, make sure you’re paying off your balance in full each month to get the most of the perks without the risk of it backfiring.”
How to redeem credit card rewards
Credit card rewards are only valuable when you can actually use them. In some cases, rewards can only be spent at certain shops, so cashback might be a better option, as this is usually paid directly to your account balance or bank account.
Different providers allow you to spend rewards in different ways, but you can usually manage and redeem them via the provider’s app or website, for example:
- HSBC gives you the option to log in to your banking app and select ‘pay with rewards’ to apply them to your next purchase.
- Santander rewards can be redeemed as cashback credit or as gift cards for shops and restaurants.
- M&S Bank allows you to access your rewards vouchers in your Sparks account on the M&S app.
Before you spend your rewards, it’s always worth checking if there’s a way to maximise their value. For example, if you have a Tesco Bank credit card, your points will be converted into vouchers every three months, unless you choose to get them faster. They can then be spent in Tesco stores, online or on fuel – but they can be exchanged for up to twice their value with Tesco reward partners, and put towards the cost of travel, hotels, holidays, entertainment and eating out.
“Redeeming with partners, like using an Amex Companion Voucher for flights, can significantly stretch the value of your rewards, especially for keen travellers,” says Fraser. “However, this requires careful planning and can be time-sensitive.”
5 ways to get your rewards credit card working harder
The following tips will help you to make the most of your rewards or cashback credit card:
1. Choose rewards that work for you
“Opt for rewards you’ll actually use, like travel perks or cashback,” says Fraser. “Cashback or account credits offer simplicity and immediate value, making them ideal for those who want a hassle-free option and don’t want to risk their rewards expiring or being overlooked.”
2. Check the small print
The most lucrative rewards credit cards typically charge a monthly or annual fee, and some may require a minimum spend before you start earning points or cashback. Always do the maths before you sign up to ensure that you stand to earn more in rewards than you’re paying out in fees.
3. Clear the balance in full each month
Once you start paying interest on your spending, the value of any rewards of cashback you’ve accumulated can be quickly wiped out.
4. Don’t miss any repayments
You could lose your cashback or rewards if you pay your bill late or miss a payment, so consider setting up a direct debit to ensure you always pay on time.
5. Take advantage of introductory offers and bonuses
Some credit card providers issue welcome points or promotional offers during the first few months, which can substantially boost your rewards points.
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